A simple truth: Death is sudden but succession can be planned

New Delhi, May 14 -- When I am writing this article, the primary objective that is running through my mind is "What happens if someone were to pass away suddenly?" It is a sensitive subject to bring up for anyone and typically we postpone this thought and make ourselves believe that nothing unpleasant of that sort will happen to us for now. While it is true for the most part of it but is the risk well-managed for the survivors in the family? We know about our own and, in general, mortality of living beings but we tend to ignore about this aspect. Two recent deaths-one of a close family member and the other a client who became dear friend over years-compelled me to pen down the various aspects on risk management, estate planning and succession planning.
1. Human Capital and Life Cover
Human capital is the earnings potential of an individual over her lifetime. When a person is starting employment then the human capital is typically the highest and it gradually reduces with time as the individual moves towards retirement.
Premature loss of life is the risk to human capital and may cause financial difficulties for surviving family members. This risk may be covered through adequate life insurance from reputed providers. The mistake people make in this aspect is using life insurance as investment vehicles, which leads to much less risk coverage than required for survivors to meet their goals, to service liabilities and maintain similar lifestyle.
2. Healthy Lifestyle and Health Cover
Eating a balanced diet, sleeping on time and the right amount, exercising regularly and being fit and leading a stress-free balanced life (work, home and family) are likely to reduce the risk of serious ailments and preserve human capital.
The risk to health may be covered through health insurance. Many a times, even if health insurance is provided by the employer, it is advisable to take additional coverage to ensure adequacy.
3. Estate Planning
Your estate, however small or big, is the result of your hard work and toil, which you have put in over several years. It is important that your wishes in terms of distribution of wealth are honoured after your time.
A good estate plan through creation of a Will and/or a Trust ensures that the wealth is distributed and utilized as per your desires. Unlike Will, a Trust is a living entity where the trust deed governs the usage of wealth linked to certain milestones. A Trust creation becomes imperative especially when you want to take care of someone (e.g., a child's health or college education at a specific age) after your time. A Will comes into action immediately after the demise of the testator/testatrix and actions towards estate transfer are one time.
4. Information Access
In my experience, families have one person who takes care of financial affairs and has access to all the information. It is mostly the adult male in Indian households. Other family members (especially the spouse) have little or no clues about the bank accounts, investments, access codes or login details.
People who have financial advisers are in a much better position. The advisers can handhold the family in case of untimely demise of a person. Individuals should ensure, with or without their adviser, that financial information is collated at one place. This includes details of bank accounts, investments accounts, insurance policies, real estate, debit cards, credit cards, nominations, document locations and contacts.
5. Information Update
Often, people forget to keep the information like addresses, phone numbers, email addresses updated in various documents, e.g., passport, Aadhaar, PAN or Know Your Client (KYC) database. You should pay special attention to your name in various documents because I have seen name mismatch as the biggest reason for delays in processing investment accounts. Keep track of expiry dates so that you may take timely action for renewal of important documents like passport and driver's license.
6. Password Management
Digitization of personal information, online transactions and access have become ubiquitous these days. We hear about data theft, unauthorized online access and security breaches many a times. Often, we are careless about choosing the right password and we end up using family members' names, birthdays and common phrases. Then there is a common problem of setting a password that is different from the several previous ones whenever an online system prompts for a new password.
You should devise a password schema for online access, which is secure and takes care of the requirement of a regular change. This information should be shared with a trusted family member or a friend.
I wish that no one should have to go through the demise (especially early) of a near or dear loved one. But human mortality is a universal truth. Being prepared is a liberating feeling and reduces the worries about the future. I hope that everyone who is reading this article takes steps to manage the risk associated with mortality.
Published by HT Digital Content Services with permission from MINT.